Law:

Section:

Section 2(47), read with section 45, of the income-tax act, 1961-Transfer-On retirement from partnership, assessee-partner received Rs. 46,500 in excess of amount due to him towards his capital and profits-Whether said excess amount was not assessable to capital gains tax since on retirement of a partner no transfer of assets within the meaning of section 2(47) takes place-Held, on facts, yes Facts On retirement from two firms of which he was a partner, the assessee received from the firms a sum of Rs. 46,500 in excess of the amount due to him towards his profits and capital. The ITO treated the sum of Rs. 46,500 as capital gains in the hands of the assessee. In doing so, he also rejected the assessee's contention that the instant case was governed by section 47(ii) on the ground that it was not a case of a dissolution. On appeal, the AAC upheld the ITO's order. On second appeal, the assessee shifted his stand and contended before the Tribunal that on retirement of a partner there is no transfer of any 'capital asset' within the meaning of section 2( 47), for a partner has no right to the partnership assets and his right is only to receive a share in the profits and assets when he retires from the firm. The Tribunal accepted the assessee's contention and held that the sum of Rs. 46,500 was not assessable to capital gains tax in the hands of the assessee. On reference: Held It is settled that there is no distinction between a case of a retirement of the partner from and dissolution of the partnership firm. When, therefore, a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts on the footing of notional sale of the partnership assets and given to him, what he receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. There was thus, in the instant transaction, no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners. Merely because section 47(ii ) excludes the application of section 45 in the case of…

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